Bailouts of little use to dying industries: commission

The Productivity Commission has warned the government to get out of the way of inevitable structural change by removing regulatory roadblocks and scrapping handouts to struggling industries.

“Attempting to forestall structural adjustment – whether prompted by a mining boom or forces such as demographic change or global competition – is unlikely to succeed, and may simply divert pressures onto other parts of the economy," the commission says in its annual report published yesterday. The nation’s leading independent reform advisory body says the government needs to focus on removing barriers to improving productivity among companies, expanding or closing businesses, and boosting labour mobility. “Many such impediments are regulatory in nature," it says.

The commission warns that bailouts to industries should be carefully screened for negative impacts on the broader economy, including the risk that assistance may make it harder for expanding sectors to attract skilled workers.

“The experience in Australia and other OECD countries is that selective industry support often inhibits or delays necessary adjustment, and is rarely effective in preserving jobs in the beneficiary firms."

The criticism echoes mounting concerns among business groups about rising regulatory burdens, and doubts about the benefits of billions in government handouts to manufacturers, particularly car makers.

In analysis that is likely to infuriate groups calling for more industry assistance, the report highlights in-house modelling that suggests manufacturing will remain a significant part of the Australian economy.

“While its output and employment shares are projected to decline further, the sector’s value added and employment levels are projected to grow in absolute terms by close to 2 per cent and 1 per cent annually, respectively, from now until the middle of the century," the report says.

The report defends the flexibility of the dollar which, it says, has helped “spread the benefits of the boom". “By the same token, the floating dollar could be expected to cushion the economy on the ‘way down’ if the terms of trade continue to unwind. This would, in turn, favour trade-exposed industries.

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“Regardless of how long the current boom lasts, maintaining – and, where appropriate, extending – this flexibility will be crucial to getting the best out of our economy, for the benefit of the community as a whole."

Treasury Secretary
Martin Parkinson
, writing in his department’s annual report released yesterday, says a key focus this year will be helping the government deliver its surplus target.

He says the past year has been marked by an excess of spending demands over available revenue which has required “hard trade-offs by government and the community".